JP Morgan boss: ‘Breakup of the EU and eurozone would be devastating’

In his annual letter to shareholders, the chairman of America’s biggest bank expressed his concern about the consequences of Brexit, as well as the financial deregulation promised by Donald Trump’s administration. EURACTIV’s partner La Tribune reports.

Jamie Dimon’s weighty letter is read every year by the planet’s top financiers, including multi-billionaire Warren Buffet. The boss of JP Morgan Chase this year focused on the increased geopolitical risks faced by the financial sector, particularly in Europe, still reeling from Brexit.

The head of the world’s biggest bank by market capitalisation is concerned about the effect the UK’s exit from the EU will have on JP Morgan’s 20,000 UK employees, mainly based in the City of London.

He added that he expected “constant pressure” from the EU to strengthen the bank’s operations inside the bloc, to the detriment of the City. Before last June’s referendum, the banker had warned his UK staff that some of them may be moved abroad in case of a leave victory.

In his letter, Dimon also gave his (rather American) view of the challenges and risks facing Europe.

“We hope that the advent of Brexit would lead the EU to focus on fixing its issues – immigration, bureaucracy, the ongoing loss of sovereign rights and labour inflexibility – and thereby pulling the EU and the monetary union closer together,” he wrote.

“Our fear, however, is that it could instead result in political unrest that would force the EU to split apart. The unravelling of the EU and the monetary union could have devastating economic and political effects.”

The political disarray in France’s mainstream parties is encouraging debate about Frexit. The possibility is alarming economists, who fear it would cause a “cardiac arrest” in global finance and make life harder for the poor. EURACTIV France reports.

Lightening regulation… but not too much

But the 61-year-old banker, who has been at the helm of JP Morgan for the last 12 years, took a balanced view. “We are not predicting this will happen, the probabilities have certainly gone up – and we will keep a close eye on the situation in Europe over the next several years,” he wrote.

While geopolitical risks are chief among his concerns, along with investment in technology and Fintech start-ups, one third of his letter was dedicated to the subject of regulation.

Once tipped as Donald Trump’s pick for secretary of the treasury, a job that finally went to Steven Mnuchin of Goldman Sachs, Dimon has demonstrated greater reserve than the new president’s advisors, who are pushing an agenda of massive deregulation.

While he used his letter to call for certain regulations to be lightened, he stopped short of demanding a reversal of the legislation put in place to avoid another global financial crisis like that sparked by the sub-prime mortgage crisis.

“We had a severe financial crisis followed by needed reform, and our financial system is now stronger and more resilient as a result. During and since the crisis, we’ve always supported thoughtful, effective regulation, not simply more or less. But it is an understatement to say improvements could be made. The regulatory environment is unnecessarily complex, costly and sometimes confusing. […] We are not looking to throw out the entirety of Dodd-Frank or other rules.”

For Dimon, the risk of banks being “too big to fail” has been resolved. He said the systems in place today would ensure that in a similar situation today, Lehman Brothers would not go bankrupt, or its failure would not have such immense repercussions on the global economy, and taxpayers would not be asked to pay for a bailout.

Yet, he believes the new capital requirements could be cut and harmonised at international level. A reduction in the capital buffers required by the Fed could, he said, “support almost $190 billion of loans”.

The 20 biggest banks in the eurozone booked over a quarter of their 2015 profits in tax havens, with Luxembourg and Ireland the favourite destinations, a report by Oxfam said on Monday (27 March). EURACTIV France reports.